The U.S. government has demanded that companies applying for investment subsidies under the Chips Act submit Excel files containing formulas for calculating profitability including expected cash flows. This has thrown Korean chipmakers into consternation.
They are calling these detailed guidelines for applying for subsidies “too much.” The detailed guidelines were issued by the U.S. Department of Commerce on March 27 (local time).
The U.S. Department of Commerce asked the companies applying for the subsidies to submit profitability indicators such as projected cash flows in Excel files for the verification of the calculation methods, not just the figures. This is part of a policy to confiscate excess profits if the companies make more than expected.
The U.S. Department of Commerce’s model requires inputs such as semiconductor plant production capacities by wafer type, utilization rate, expected wafer yield (percentage of defect-free products), selling prices in the first year of production, production volume for each year, and changes in prices.
Semiconductor industry insiders argue that items such as yields and utilization rates are key indicators of a company’s competitiveness, so they are the company’s trade secrets. The percentage of passing products from a single wafer can determine unit costs of products and technological power, among others.
If these key trade secrets are leaked to U.S. companies like Intel or their competitors, it will give devastating damage to Samsung Electronics and SK Hynix. This makes Korean companies eligible for subsidies think twice about applying for them.
Samsung Electronics is investing US$17 billion (22.329 trillion won) to build a foundry plant in Taylor, Texas in the United States. The foundry plant is expected to start operation by the end of 2024. SK Hynix is also planning to build an advanced packaging plant in the United States, which will be eligible for the subsidies.
This is nothing new. In 2021, when the United States faced a semiconductor shortage, the U.S. government also demanded Taiwan’s TSMC and Korea’s Samsung Electronics submit confidential data on foundry inventories, orders, sales and others, saying that the U.S. government wanted to boost supply chain transparency.
“In addition to subsidy applications, the U.S. government is routinely demanding business disclosures from other companies in order to grow its own companies and expand jobs for Americans,” said another industry insider. “Given a supply chain crisis in 2021 and the recent relaxation of guardrail regulations, there will be room for individual companies to negotiate with the U.S. government this time as well.”
Even if the U.S. government sets the table for such negotiations, Korean companies will continue to mull over the matter. While the U.S. Department of Commerce has set aside a total of US$39 billion (about 51 trillion won) in subsidies, nobody can expect how much individual companies will receive. Considering excess profit sharing, labor union burdens, and restrictions on semiconductor investment in China, Korean companies may not benefit from the U.S. government’s subsidy programs and lose more than they earn.
Nevertheless, experts said the subsidy application is inevitable for Korean companies given the rising cost of investment due to inflation and commodity price hikes and South Korea’s relationships with the United States.
“The U.S. government’s demands may be excessive, but the United States has the original technologies for semiconductors, including those for extreme ultraviolet lithography equipment,” said Kyung Hee-kwon, an associate researcher at the Korea Institute of Industrial Economics. “Some high-tech U.S. industries and high-level U.S. workers are also needed for Samsung Electronics’ growth in the non-memory sector, so I think Samsung Electronics will apply for the semiconductor subsidies.”
“The Korean government and companies need to show consistent responses that communicate that Korean companies cannot provide information that constitutes trade secrets while continuing to cooperate with the United States,” said Sung Tae-yoon, an economics professor at Yonsei University. “We should also prepare a plan to cooperate with U.S. companies in order to negotiate with the U.S. government.”